ExxonMobil’s Deals With Kurdistan Irk Baghdad

London/Baghdad: ExxonMobil has signed oil and gas exploration deals with Iraq’s Kurdistan, an adviser to the Kurdish government said yesterday, in a bold step that prompted warnings from Baghdad that the move could jeopardise the company’s future in the country.

A senior Iraqi oil official said the central government knew that ExxonMobil was in talks to explore in the region and had warned that any deal with the Kurdish Regional Government (KRG) could result in the termination of ExxonMobil’s deal to develop the giant West Qurna field.

Baghdad and the government of the semi-autonomous northern Kurdish region have longstanding disputes over oilfields. Baghdad deems contracts between the KRG and foreign oil companies to be illegal. “The KRG has for the last few months been in discussions with a number of major oil companies. This resulted in the recent signing by ExxonMobil of contracts to explore in six blocks,” KRG adviser Michael Howard said. He did not disclose details of the contracts or the locations of the blocks.

Abdul-Mahdy Al Ameedi, director of the Iraqi oil ministry’s contracts and licensing directorate, said the government had three letters to ExxonMobil last month. “All three letters were clear,” Ameedi said. “The signing of any contract with the Kurdistan Regional Government without the approval and the knowledge of the Iraqi central government and the oil ministry will be considered illegal.”

Ameedi said he could not confirm that ExxonMobil had signed the contracts. ExxonMobil, with Royal Dutch Shell, clinched a 20-year deal in 2009 to develop West Qurna Phase One, an 8.7-billion-barrel field in southern Iraq, beating out Russian, French and Chinese rivals.

“The company, according to Iraqi law, could be disqualified from having any contracts or any work with the oil ministry and it could result in the cancellation of the West Qurna Phase One contract, (with ExxonMobil) to bear all the legal consequences of their action,” Ameedi said.

“West Qurna Phase One contract terms are very clear, and a clause in the service contract says if the company violates Iraqi laws then its contract could be terminated,” he said. “Any deal between the Kurdish region and ExxonMobil would be a clear violation of the West Qurna contract.” ExxonMobil declined to comment. Its shares rose 1.1 percent to $79.83 in early trading on the New York Stock Exchange, in line with gains by other large oil companies.

HYDROCARBON LAW

Despite Baghdad’s immediate reaction, analysts said Exxon’s move could indicate that an agreement is close on a long-awaited hydrocarbons law, paving the way for more deals in the oil-rich north. “It’s possible they got some kind of special exemption, but what I think is more likely is that there has been some sort of significant movement on the hydrocarbons law … I think that someone must have quietly given the nod,” said Saket Vemprala of Business Monitor International. “They would be crazy to do this if they hadn’t got assurances from Baghdad.”

Other analysts said Exxon may have made a calculated decision to push Baghdad to set a national policy on oil development that helps open the Kurdish region. “In our view, the temptation has become too great for Exxon to resist,” said Phil Corbett, analyst with Royal Bank of Scotland. “Effectively, Exxon is calling Baghdad’s bluff, presumably believing that it won’t lose its West Qurna project interest with a move into Kurdistan.”

The Iraqi government and the KRG have been unable to agree on a hydrocarbons law. The Iraqi cabinet in August approved a draft law that would have given the Arab-dominated central government more control over the nation’s oil reserves. The decision was harshly criticised by Kurdish officials.

In late October, Prime Minister Nuri Al Maliki and KRG Prime Minister Barham Salih agreed to work on amendments to a 2007 version of a draft hydrocarbons law agreed by all political blocs, or to adopt the 2007 bill as is, by year-end, potentially defusing a major row, Iraqi officials said.

In June, Deputy Prime Minister Hussain Al Shahristani, who oversees Iraq’s burgeoning oil sector, said West Qurna Phase One production had hit 350,000 barrels per day and was expected to reach 400,000 b/d by year-end.

ExxonMobil raised the production plateau target from West Qurna to 2.825m b/d last November after adding new reserves to the area covered by their original development contract. The original plateau target for ExxonMobil when the contract was signed in January 2010 was 2.325m b/d in six to seven years.